Indian GST litigation series, part two: assessment

The previous article concluded that pre-assessment proceedings such as scrutiny, audit, and inspection are codified in law. Deviation from the procedure prescribed in law by the tax authorities will vitiate the entire assessment proceedings.

In April 2024, the three-judge bench of the Supreme Court of India, in PHR Invent Educational Society v UCO Bank and others, observed that if the statutory authority has not acted in accordance with the provisions of the enactment, the high court in question can entertain the petition under Article 226 of the Constitution.

Therefore, taxpayers can consider approaching a high court under Article 226 to set aside defective pre-assessment proceedings. Before approaching the high court, the manner in which pre-assessment proceedings were conducted and the conclusion arrived at by the tax department must be analysed extensively.

The important feature of the goods and services tax (GST) law is that pre-assessment proceedings involve the consideration of documents, evidence, and written submissions for an officer to formulate an opinion/report. Based on this opinion/report, show cause notices can be issued. In some cases, officers who were involved in the inspection and audit proceedings adjudicate the show cause notices. Such cases raise a fundamental issue of propriety.

The adjudication of a show cause notice is a quasi-judicial act that requires adherence to the principles of natural justice. The fundamental principle of natural justice in the case of quasi-judicial proceedings is that the authority deciding the dispute must be one without bias (see Gullapalli Nageswara Rao and others v Andhra Pradesh State Road Transport Corporation and another, Supreme Court, 1959).

Applying the principle laid down by the Supreme Court, if pre-assessment proceedings culminate in a show cause notice, the officers involved in pre-assessment must not sit in the capacity of an adjudicating authority. This is because the officers would have formulated a view during pre-assessment on a subject matter that would form part of the show cause notice.

The GST law has subsumed several erstwhile indirect taxes levied and collected by the central government and state governments into central goods and services tax (CGST) and state goods and services tax (SGST) acts. Officers appointed by the central and state governments are empowered to conduct pre-assessment and assessment proceedings. Every taxpayer registered under the GST law is administratively assigned to a central or state tax office to ensure a single interface.

Section 6 of the Central Goods and Services Tax Act, 2017 (the CGST Act) states that officers appointed under the respective SGST act will be the proper officer under the CGST Act, subject to the conditions the government – on recommendation of the Goods and Services Tax Council, by notification – specifies. A similar provision exists in certain SGST acts. Based on this provision, questions have been raised as to whether the state officers and central officers have concurrent jurisdiction on the taxpayer for assessment.

In Tvl. Vardhan Infrastructure v The Special Secretary and five others, 2019, the Madras High Court held that until the date in the context of assessment, no notification had been issued under Section 6 of the CGST Act empowering SGST officers as a proper officer for the purposes of the CGST Act and vice versa. Accordingly, the high court concluded that state authorities have no jurisdiction to initiate assessment proceedings against a taxpayer assigned to central authorities and central authorities have no jurisdiction to initiate assessment proceedings against taxpayers assigned to state authorities. The implication of this judgment is that a taxpayer’s assessment can be conducted only by the administrative state/central offices assigned to it.

This issue is still strongly debated.

There are cases where the GST authorities confirm a higher tax demand in the assessment order or introduce new grounds to sustain the proposal in the show cause notice. Clearly, such an act is unjust on taxpayers as their defence will be structured based on the contentions discussed in the show cause notice.

Courts have always taken a stand that the authorities cannot travel beyond the scope and proposal in the show cause notice (see Commissioner of Central Excise, Nagpur vs Ballarpur Industries Limited, 2007). If the show cause notice has failed to invoke any specific allegation, it would not be open for the authorities to rely upon such ground in the order for the first time. The GST law maintains the same principle.

Section 75(7) of the CGST Act states that the amount of tax, interest, and any penalty demanded in the order must not be in excess of the amount proposed in the notice, and, furthermore, no demand shall be confirmed on grounds other than those specified in the notice. Therefore, the authorities are confined to the quantification and grounds proposed in the show cause notice during adjudication.

The GST law also fixes a time limit for the authorities to complete an assessment and pass an assessment order. The relevant provisions are discussed below.

Particulars	Section 73	Section 74
Pre-condition (tax short paid, not paid, input tax credit wrongly availed and utilised, refund erroneously granted)	-	There must be fraud, suppression of fact, or a wilful misstatement to evade tax.
Time limit to pass an order	Three years from the due date for the furnishing of the annual return.	Five years from the due date for the furnishing of the annual return.
Time limit to issue a show cause notice	Three months prior to the time limit for the issuance of an order.	Six months prior to the time limit for the issuance of an order.

The aforementioned time limit is mandatory in law. For the invocation of Section 74, it is incumbent on the tax officer to establish there is a deliberate act on the part of the taxpayer by way of fraud, suppression of fact, or a wilful misstatement to evade tax. This is a prerequisite to assume jurisdiction under Section 74 of the CGST Act.

Not all cases of short payment or non-payment of tax, or the wrongful availment of input tax credit allow the officer to resort to Section 74. The officer must establish as jurisdictional fact that there exists a deliberate suppression of fact, fraud, or a wilful statement to evade tax. Whether this jurisdictional fact is decided correctly or wrongly can be examined by the high court directly under Article 226. Therefore, notices bereft of clear facts and reasons for the invocation of an extended period of limitation will not stand the test in law.

This Indian GST litigation series has discussed the possibility of approaching a high court directly for relief to set aside a faulty pre-assessment or assessment.

There is no doubt that the law provides an opportunity for taxpayers to present their case before the authorities at the stage of pre-assessment and assessment proceedings.

However, in cases where a demand is raised in violation of the statutory provisions, the principles of natural justice apply, or if the tax department exceeds its jurisdiction, taxpayers must make an important call on the best possible remedy to be pursued to protect their interests.

The views expressed in this article are entirely personal.